The Federal Board of Revenue (FBR) witnessed a sharp decrease in the number of companies that issued bonus shares in 2014 to avoid payment of a 5 percent tax imposed through the Finance Act, 2014. Sources told Business Recorder here on Saturday that the FBR is compiling data of the corporate sector on issuance of bonus shares to shareholders. So far, the FBR has observed a decline in trend of bonus shares issuance to shareholders on the imposition of a 5 percent tax on these shares under Finance Act 2014.
The exact data of companies which issued bonus shares would be compiled in due course of time. Sources said that the companies have the option to pay a 5 percent tax on issuance of bonus shares or pay a 10 percent tax on dividends or increase their accumulative profits by not declaring dividends. It depends on a case-to-case basis keeping in view the functions and operations of companies.
FBR''s trend analysis shows that a few companies which were declaring issuance of bonus shares every year have now stopped issuing the same due to the imposition of a 5 percent tax on such shares under the Finance Act, 2014. When a 5 percent tax was imposed on bonus shares in budget (2014-15), budget makers analyzed that bonus shares worth Rs 1500 billion were issued previous year, but no tax was collected. Around Rs 75 billion could be generated in the form of tax through bonus shares worth Rs 1500 billion. During previous year, a huge amount of bonus shares was issued in lieu of dividends; however, no tax on dividends or capital gains was received. At the same time, the FBR apprehended that the imposition of a 5 percent tax on bonus shares would force certain companies to stop issuance of bonus shares.
According to the Finance Act, 2014, every company, quoted on stock exchange, issuing bonus shares to the shareholders of the company, shall withhold five percent of the bonus shares to be issued. According to the procedure on deduction of tax on bonus shares issued through Finance Act 2014, bonus shares withheld shall only be issued to a shareholder, if the company collects from the shareholder, tax equal to five per cent of the value of the bonus shares issued to the shareholder including bonus shares withheld, determined on the basis of day-end price on the first day of closure of books. Notwithstanding anything contained in any law for the time being in force, every company, quoted on stock exchange, issuing bonus shares to the shareholders of the company, shall withhold five per cent of the bonus shares to be issued.
Finance Act said that the tax shall be collected by the company, within fifteen days of the first day of closure of books. If the shareholder fails to make the payment of tax within fifteen days or the company fails to collect the said tax within fifteen days, the company shall deposit the bonus shares withheld in the Central Depository Company of Pakistan Limited or any other entity as may be prescribed.
The bonus shares deposited in the Central Depository Company of Pakistan Limited or the entity prescribed shall be disposed of in the mode and manner as may be prescribed and the proceeds thereof shall be paid to the Commissioner, by way of credit to the federal government.
The issuance of bonus shares shall be deemed to be the income of the shareholder and the tax collected by the company or proceeds for the bonus shares disposed of and paid shall be treated to have been paid on behalf of the shareholder. Tax paid under this section shall be a final tax on the income of the shareholder of the company arising from issuance of bonus shares. Finance Act 2014 had also issued procedure for bonus shares issued by companies not quoted on stock exchange.
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